Your Right to Know

WASHINGTON — More than five years after the housing market collapsed, the U.S. government’s
newly created consumer watchdog said today it will force banks to verify a borrower’s ability to
repay loans to ward off the kind of loose lending that helped push the U.S. economy into
recession.

The Consumer Financial Protection Bureau said its new guidelines would also protect borrowers
from irresponsible mortgage lending by providing some legal shields for lenders who issue safer,
lower-priced loan products.

Lenders and consumer groups have anxiously awaited the new rules, which are among the most
controversial the government watchdog is required to issue by the 2010 Dodd-Frank financial reform
law.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages
they can’t afford,” Richard Cordray, the bureau’s director, said in a statement.

The new rules are intended to combat lending abuses that contributed to the U.S. housing bubble,
when shoddy mortgage standards led American households to take on billions of dollars in debt they
could not afford.

The U.S. economy is still feeling the after-effects of the bubble, which sparked a global credit
crisis after it burst in 2006. As the housing market imploded, banks sharply tightened the screws
on lending.

Regulators said the new rules would head off future crises by preventing irresponsible lending,
without forcing banks to restrict credit further. Lenders will have to verify a potential borrower’s
income, the amount of debt they have and their job status before issuing a mortgage.

And because lenders are likely to want the heightened legal protection that comes with offering
certain “plain vanilla” loans, the rules could go a long way in determining who gets a loan and who
can access low-cost borrowing rates.